Cochrane, Inc., is considering a new three-year expansion project that requires

Question

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,680,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. Assume the tax rate is 34 percent and the required return on the project is 14 percent.

What is the project’s NPV? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,680,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. Assume the tax rate is 34 percent and the required return on the project is 14 percent.

Explanation / Answer

## Cash Flow = 1950000-106000 = 890000

Net cash flows after tax = 890000*(1-0.34) = 587400

Year Cash Flows PVF@14% PV 0 -1680000 1 -1680000 1 587400 0.877 515263 2 587400 0.769 451985 3 587400 0.675 396478 NPV -316273

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